Biz Incentives: Zero sum game or value proposition enhancing?

I am on the record saying that the subsidy and tax incentive battles that rage between states and provinces to attract business investment is biased against small provinces such as New Brunswick. Further, I have said I would approve of a North American wide complete disarmament of all corporate incentives. What I stridently do not approve of is unilateral disarmament where a place like New Brunswick says no to any kind of tax breaks or incentives and competitor jurisdictions rake in the business investment, jobs and ultimately tax revenues. My caveat is that all tax breaks/incentives used must show a clear return on investment for the taxpayer. Why dole out tens of millions in incentives only to get millions in tax revenue? That’s when you are chasing your tail and only trying to keep things from getting worse.

There is a good discussion of this in the NY Times today. It basically casts a negative view of any of the attempts to lure business – a view I am sympathetic to.

There is one positive outcome of the competition, however. Just like most things – when you have competition it forces you to be more sharp. I still remember the former governor of New York talking about how he had cut or eliminated 90 different taxes or fees on business to stop the flow of investment to the south in the 1990s. I didn’t even know there were 90 different taxes or fees. But the competition goes way beyond tax breaks, jurisdictions have to hone their education and workforce development efforts, they need to be able to attract people, etc. If we were to remove competition between states, provinces or cities for that matter what would happen?

To push the point a bit I think much of Atlantic Canada’s economic malaise is due to its inability to think about competing for investment. It’s easier to ask the Feds for more transfers than it is to try and compete – seriously compete – for business investment, or private research dollars, or highly skilled talent or whatever. Smallness is no excuse. Many of the fastest growing U.S. states are the smallest states.

So I am in favour of looking at ways to reduce – across North America – the incentives game but I believe vigorous competition for business investment is, on the whole, a good thing.

You say a lot there, but your argument seems to get tied up in knotts the further you try to elaborate. I get the drift of it though. I’m in agreement, i think it’s important that jurisdictions position themselves to be competitive (cost & taxes are imp.). You are also correct when you note that being on the periphery is no excuse to pack it in (i.e. become further dependent on outside transfers). Many regions, states and countries in similar economic situations, like ours, have worked their way out of it. But it’s important to note, in places where this has happened, various government incentives, which produce “rent seeking” tendencies rather than business investment, were greatly reduced so as to lift the burden off the private sector. Not sure this is an easy thing to get rid of, in Atlantic Canada, as there is no accountability to the money flowing in from outside since it’s being generated from other povince’s revenues (i.e. income taxes).